Articles
What Concept оf Political Economy
is Adequate for Strategy of Regional
Growth in Russia?1
Vladimir Juryevich Malov*
Summary
This paper discusses the theoretical
premises of a strategy of regional
economic growth. It recommends that
attention should be paid to the various
types of capitalism, including peripheral
ones, for which developmental laws differ
from the ones effective in developed
economies. A brief overview of the history
of the types of "national political economy"
allows for establishing alternative options
of economic reforms. The conclusion is
arrived at whereby the projection of the
"mainstream" type will not be in line with
the desirable changes of the Russian
economy.
Key words: National political economy,
peripheral capitalism, history lessons.
JEL Classification: R10, B15, P16
1. Introduction
T
oday virtually all Russian regions
have drafted their own development
strategies. They are required to develop
these strategies by the respective federal
Law for the Russian Federation of June 28,
2014 №172-FZ, "On the strategic planning
in the Russian Federation" (hereinafter
Act 172). Moreover, in many universities
and research academies Act 172 it is a
compulsory discipline. This is justified, as
students’ ability to navigate this law allows
them to easily find a job in government.
Knowledge of economic laws (the law
of value, the law of supply and demand,
and., among other legal instruments) are
needed only as a backdrop. It is more
important to be aware of the terms and
conditions regulating the submission
of their strategy to superior authorities
for approval. This in turn increases the
likelihood of being allocated budget funds
for the development of their region.
Particular interest and attention should
be focused on article 3, para 23 of Act
172, which reads as follows: " ... forecast
of socio-economic development of the
Russian Federation - the strategic planning
document contains scientifically based
system (emphasis added –V.M) views
on the directions and expected results of
the socio-economic development of the
Russian Federation in the medium - or
long-term period". It is pertinent to ask:
who develops the "scientific" assumptions
about the expected economic development
of the region and its place in the world
economy? What are the laws of economic
development created by the "system"?
Article is prepared within implementation of the EF NSU project "Development of tools of an economic assessment of large
projects: interactive methods in research and educational processes"
*
Doctor of Economics, Novosibirsk, State University, E-mail: [email protected].
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Who and what research organization
develops the theoretical views on the trends
of development of the Russian Federation
and its regions? Act 172 most often makes
mention of the Ministry of Economic
Development (MED). Then perhaps the
whole "system" rests on the pillars of this
ministry. Considering that MED adheres
to the mainstream theory, which is in turn
clearly and purposefully oriented towards
the establishment of a market economy
(of course, the best) in Russia, it is evident
that the estimates for individual regions do
not go beyond this realm. The estimates for
the separate ministries and/or corporations
further suggest that it is a market economy,
especially global, sets the guidelines for the
development of Russia’s regions.
The construction of any aircraft requires
that at least law of universal gravitation is
complied with. It is worth abiding by this Act,
even though it is not a federal law approved
by the Government or approved by the State
Duma. If this law is ignored, the aircraft is
likely to fall to the ground. The law reflects
reality, regardless the different perspectives
for its assessment. In its development, the
economy is also subject to objective laws.
However, there is no general consensus
about what laws apply at some point in time
and at a specific place. What is more, any
shift in power is likely to bring about a shift in
the perspectives as which of these objective
laws should provide the basis for a specific
legislation that is, the theoretical concepts
are to be applied to specific action in the
field of economic governance.
2. On the question of results
of a shock therapy as only way
for Post-Soviet Russia’s economic
recovery
Even long before "shock" approach
to applied to Russia’s market economy
(up to 1992), many researchers warned
against the dangers of this approach. A.G.
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What Concept of Political Economy is
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Aganbegyan saw the future of the Soviet
economy as an organic combination of the
centrally-planned and market economy,
albeit a social-market one [1]. Dr Habil V.
N. Bogachyov also highlighted the need to
use market tools, though combined with the
instruments of centralized strategic planning:
"Valuable measuring instruments are
provided not only competitive environment
of individual producers, but also by the
properly developed centralized plan" [2, p.
70.]. In 1991 (back during the communist
times of the USSR), V. N. Bogachyov made
a critical analysis of the first results of
Perestroika reforms, and noted: "Mistakes,
mistakes … There are too many mistakes
in the economic policy, so many that you
start doubting whether they are mistakes
at all. The mistake is something you make
by accident, like the missed target: the
bullets of the poor shooter would evenly
spread across the board. Yet, if all shots are
scattered to the right of the center - it is not a
mistake, it is the fault of the poorly adjusted
gun" [3, p.57]. He warns about dangers of
the market euphoria typical of the economic
thought of that period: "Economists found a
new spillikin – the market. It is advisable to
understand that the market does not exist at
all at all, its monopoly version is worse than
any centralized administration …" [3. p. 58].
Back in 1993, participants in the debate
on "The fate of the economic reform in
Russia", which was held on the pages of The
Economy Issues magazine, raised questions
pertaining to the goals of the reform and its
theoretical bases. L.I. Abalkin notes that "the
importance of theoretical generalizations
… consists in the points of departure they
establish for the analysis of the course of the
economic reform of the assessment of the
taken steps, and, if necessary, the correction
of the pursued course." Furthermore, "Any
of the goals set at this stage of reform were
not yet reached." [4. p.6]. That is, the rise in
the price level went beyond all expectations,
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output dropped, and the budget deficit grew.
On this point we can disagree with L. Abalkin:
a goal of the reforms (as if "in brackets") such
as the destruction of the command system of
governance, the disintegration of the USSR
and the collapse of defense industry, and,
eventually, rendering the reforms irreversible,
has been achieved in any case. As Dr.Ec.
Sc. Menshikov put it in a straightforward
manner, "That Clinton, and his successor
Bush managed to turn their major class and
social and strategic rival into a peripheral
and economically dependent country, and
politically – into a second-rate partner of the
United States in their global imperial strategy,
is no doubt a colossal victory for Washington.
… Only those who sincerely believed in US
intentions of transforming Russia into a normal
western country with an adequate economy
and welfare state can possibly deem this as
a defeat or failure of the American policy.
They had no such intentions". [5].
In 1998, the Italian journalist D. Chiesa,
who does not see himself as a professional
economist but is nonetheless accurate,
formulated the essential reasons for the
catastrophic failure of Russia’s market
reforms, based on their "civilization"
component. "In the distant past there used
to be something referred to as "civilization".
They wanted to achieve it at any cost, even
by claiming the life of the last Russian,
while there was still life on Earth. We should
hurry! There is no time to waste! This was
a huge mistake, as they should not have
hurried… Yet, there was a bigger mistake…
unless you could copy this civilization
with absolute precision, it is completely
impossible to imitate it at a stage when
the civilization itself started questioning its
goals and "reconsidering" its own flaws and
limitations". [6. p. 123]. This is not the first
time, and not only with regard to our country,
that the question of the civilization choice
in the economic reform was being raised:
at what cost and with what ultimate goal
are some or other reforms in the country’s
economic life carried out? Yet, in the field of
the theoretical analysis of the economic and
social organization, the most comprehensive
research was undertaken by Dr.Ec.Sc. V.A.
Volkonsky [7]. At the heart of the research
was the contradiction between a person’s
material and intellectual wealth. Economic
progress opens up opportunities for the
wealthy to become even wealthier, which in
turn increases social inequality and destroys
the intellectual foundation of human
civilization. In this assumption, Volkonsky
takes a stance very close to those who
make a distinction between economy and
hrematistika2, as the latter term was defined
by Aristotle. According to Max Weber, the
"spirit of capitalism" requires relinquishing
the feverish accumulation of wealth as an
end in itself, and requires that profits instead
are invariably reinvested into the generation
and expansion of production. The capital,
whether of Protestant, Catholic, atheistic or
any other origin, turned out to be capable
of breaking to the effect of the growing
inequality between basically equal people
not only in terms of consumption, but also
with regard to their chances to start up any
economic activity. "The experience of the
post-war decades reveals that "copying"
someone else’s economic system rarely
generates success, just like copying the
homework assignment from the excellent
performer in class… Obviously, we can
get oriented among the huge variety of
economic governance models, only if we
draw on some theory". [7, p. 200].
Brightly and figuratively this thought was
voiced by professor Lifshits with coauthors
in "It it necessary to Dress the Naked King’s
According to Aristotle, the economy is the art to get the useful things to in life, and a hrematistik – the art to make money
through trade. The goal of the economic development is natural wealth, whereas the goal of hrematistika is unnatural wealth,
accumulation in a monetary form, possession of money.
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Clothes?" They accurately formulated
thought is why it is time to recognize that
"the king is naked" and whether it was
necessary in the early 1990s to put on the
western "economic clothes" with regard to
our economy. [8, p. 214].
3. Badly forgotten past
If we were to build capitalism, then it would
be useful to recognize the existence of all its
forms that were much written about but not
taught in higher education institutions of the
USSR. Is that the case? After all, capitalism
exists, according to K. Marx, and this is
enough. The USSR did not intend to build
capitalism, and after its collapse, there were
either aspirations that "advanced" capitalism
should be built promptly (like the American
or Western European versions), or else, that
reformists were simply unaware of the other
capitalism theories, given that during their
training in the United States, such theories
were not taught there. Though we were also
warned (including by Nobel Prize laureates)
of the dangers of this path of development,
another model was preferred. The question
of why such a course of development
was chosen falls outside the scope of this
paper. It makes no difference whether this
decision was made out of ignorance or for
bad intentions. The mainstream version
championed by "Friedman and co" was
chosen. A blind eye was turned to the theory
of "peripheral capitalism", whether or not
deliberately, even though this version was
far more appropriate to Russia’s economic
environment. In the middle of the 20th
century, the Latin American economist R.
Prebish critically examined the results and the
economic development of the Latin American
countries. He then formulated the concept
of "peripheral capitalism", and its major
theoretical assumption reads as follows:
both the peripheral (developing) countries,
and the core countries (the industrially
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What Concept of Political Economy is
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developed ones, relating to so-called "gold
one billion") are capitalist only in nominal
terms. This version presents a basically
different form of capitalism. "The specificity
of the periphery emerges everywhere - in
the sphere of resources and consumption,
in the production structure, in the level
democratic development, in system of land
tenure and formation of the budget surplus,
in demographic growth". The researcher
further stated that". . . the myth that we could
develop just like the core [countries] has
been debunked" [9, p.21].
Adam Smith’s and David Ricardo’s doctrines
about the omnipotence of the market, about
the benefits of free and unfettered trade and its
ability to boost economic growth and increase
labor productivity, among other premises, have
been known for a long ago. Names of critics of
these doctrines, in particular the name of the
German geographer Friedrich Liszt (the first
half of the 19th century) are less known. His
book, "National System of Political Economy",
focuses attention on the practical value of
the "anti-market" approach for Germany’s
reunification [6]. In his opinion, for the sake of
its national interests, Germany should develop
the industries that have no competitive
advantages in comparison to the ones in the
UK. Liszt further suggests that such a loss
of costs should be considered only as the
alternative price (trade-off) to the nation’s
industrial education (it is allocated by me - In,
M). It is worth noting that Otto Bismarck was
a fervent adherent of Liszt’s views. Perhaps it
was this "national political economy" as the
economic fundament of regional policy that
allowed him to unite Germany. More than
100 years prior to Liszt, similar ideas about
the undisputed sovereignty of the domestic
market were conceived on Russian soil by
our compatriot I.T. Pososhkov. In his "On
scarcity and wealth", which he dedicated to
Peter the First, Pososhkov suggests halting
altogether the imports of goods which can be
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produced in the country, though at first sight
of not such quality. In his opinion, an active
protectionist policy to stimulate the expansion
of the domestic industry is needed [11]. The
latter would lay the breeding grounds for the
Russian exports of ready-made products. We
should bear in mind that this assumption was
made 300 years ago3. Much closer in time,
another compatriot of ours, D. I. Mendeleyev,
spoke at the Industrial congress in Moscow in
1882 (on the stage at which the construction
of the Trans-Siberian Railway was underway).
He called for addressing the need to continue
the construction of convenient paths to the
east, voicing expectations about the rapid
increase in the demand for industrial goods in
this region. At the same time he pointed out
that: "Without initial [state] protection, naturally
it is impossible that the enterprises operating
in domestic markets could possibly compete
with the ones already operating in the West"
[12, p. 141). Our eyes are now wide open to this
historical truth, though in the conditions of the
now effective program for "import substitution".
Ultimately we locked the barn after the horse
had been stolen.
4. Well forgotten history of Russia’s/
the USSR’s numerous cases of
economic recovery
At the end of the 19th century, it was
impossible to define Russia as a country of
developed capitalism. It was only the country’s
separate regions that hardly earned their
living. We should give tribute to S. Witte, who
was among the first to design a new path
for Russia’s development mostly due to his
ambitions to establish a modern (for the time)
free market economy in the Russian Empire.
Furthermore, Witte’s commitment to Liszt’s
ideas should be emphasized. Witte makes
a clear distinction between the real political
economy and the cosmopolitan one, which he
assumes to be the abstract science in general
that applies to all human civilizations. "It is
absurd to require that all economic malaises
of a country are treated according to the
prescriptions for the cosmopolitan economy,
just like as requiring that an engine is designed
based on analytical mechanics formulas,
without taking into account the quality of the
used materials, the role of resistance and
atmospheric conditions" [6, p.1]. Witte is
adamant that "[i]f the intellectual life of the real
century was not under the strongest influence
of cosmopolitism, then undoubtedly, along
with the development of political economy, the
applied science of national economy would
have developed". There is no need once
again to recall his role in creation of the TransSiberian railway, which was constructed with
state budget funding, without any hopes for a
return on the investment. The cargo base was
established after the Trans-Siberian Railway
was commissioned into operation.
In the 1930s, the USSR had no other option
but focus on the domestic market, and on the
creation of its own viable production, providing
practically everything needed, especially with
regard to electricity, metallurgy, mechanical
engineering, national defense. There was an
understanding that productions should be
shifted to the different distant regions in the
country that are not exposed to external threats.
Perhaps it is appropriate to recall the wellknown saying of the prince A. M. Gorchakov told
after unsuccessful Crimean war of 1853-1856:
"They say that Russia has been growing angry.
No, Russia is not getting infuriated, Russia is
getting concentrated". It is getting concentrated
on the creation of an independent economy for
protecting national security. In the space of 2030 years, when the USSR was "fenced off" from
the western markets, it was only the art of the
Soviet diplomats and the 1929 world crisis that
allowed for obtaining useful information about
equipment and technologies for the future
independent economic development. All this
In modern terms – it was offered to pass in policy of import substitution, stimulation of domestic producer for the subsequent
production of goods to export with a bigger value added.
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was envisaged in the plans for GOELRO, UraloKuznetsk combine, a group of the territorial and
production complexes (TPC) of the AngaroEniseysk region. And, at last, the creation of
the theory of TPK as forms of the organization
of labor force was particularly useful for the
newly developing regions of Russia’s regions in
Asia. These decisions of the Soviet leadership
were in line with the theoretical views of those
who considered economic (more precisely,
commercial) efficiency of far minor importance
than the goals of defending national security
and the protection of the population in this
part of the country as an element of social
control over the territory. Whether or not it
was acknowledged, which is not so relevant
nowadays, the policy pursued in this period
was governed by the laws of geopolitics: it
involved the creation of the basis to counteract
the "marine forces", NATO’s member states.
The post-war recovery period also involved
an independent development in the extremely
adverse conditions of the highly "unproductive"
expenditures in the defense sector. They
are seen as "unproductive", given that many
technological innovations were implemented
namely in the military and industrial complex,
while the cosmos and the atom have always
been, and still are, the flagman of our industry
and of the scientific and technological progress.
The example of Germany’s recovery
after World War II is revealing. "Germany’s
economic miracle", that is, the rapid growth
of the German economy in the 1950s and
1960s, is an example of how the issues
of the preservation of political stability
and reasonable state intervention were
successfully combined. A basically new model
of granting funds was the distinctive feature
of the Marshall plan. The US manufacturer
was the supplier of the German industry,
was granted aid (in US dollars) from a
special government fund, while the customer
deposited money (the Deutsche Mark most
often extended as a loan), in a specially set
up European fund for new investments.
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in Russia?
Presumably the Marshall plan also
contributed to the implementation of the
US government’s program to assist the US
economy as long as the plan promoted US
exports. Yet, what should be paid attention to
is the goal of German reforms: the creation
of worthy living conditions for all German
nationals, while the market was seen only a
means to this end. On the contrary, our native
reformists took action to the opposite effect.
The mainstream as the driving force
behind the world economic development took
the offensive along the entire "geographical
front", without hiding its rhetoric of justice. As
US President Barrack Obama argued, "The
world has changed. The rules are changing
with it. The United States, not countries like
China, should write them. Let’s seize this
opportunity, pass the Trans-Pacific Partnership
and make sure America isn’t holding the
bag, but holding the pen." (quoting Obama’s
speech on the ratification of the TransPacific Partnership - the trade and economic
organization that would be a boon to American
businesses and American workers, and
provide the United States the opportunity
to dictate rules governing world trade in the
21st century, The Washington Post on 3 May
2016). The statement was made openly and
with confidence not only in their own justice
but their power to mete out justice. This is
what we can describe as the geographical
projection of the mainstream: it is the global
market and its leading players that establish
and dictate the rules that each country and
their regions should abide by. Russia and
Siberia are no exceptions in this respect. Let
is assume that "Siberian Damnation", written
in line with the concept of the mainstream,
is the latter’s spatial projection. It is the most
powerful, whether an individual, a state or a
region, who survive. In a specific region, if
production is expensive, that is, if the prices of
the final product do not provide for an average
rate of return on investment, then this region
is bound to either reduce or optimize (which
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again suggests reduction) its costs, whether
on staff pay, environmental quotas, and other
spending items, depending on the benefits for
the world or the global economy. Interests of
the certain region, its population, or even the
entire state are regarded of least importance.
This is one of the assumptions on which
Paul Krugman based his concept of the new
economic geography: it is the global economy
that dictates the rules of the economic "game".
5. By way of conclusion
At the time of economic reforms in the
1990s, the actual destruction the state
bodies of territorial development4, the
orientation to the "appropriate" corporations,
and the aspirations to burden the latter with
social responsibilities, is a mere projection
of the policy of the widening gap in the living
standards the country’s regions. There has
been an ongoing process of demographic
decline in extensive territories across
northern Europe, Siberia and the Far East
continues, which in fact reduces the social
control over space as element of national
security. It should be noted that these
processes are perfectly in line with the laws
governing the global economy. Whether
such developments protect Russia’s national
interests is a rhetorical question per se.
In the 1960s, mathematical economic
methods were introduced in the USSR under
the "supervision" of the socialist political
economy, that is, the model presumably had
to comply with laws of political economy.
What is more, this observation is confirmed
when we look into the streamlining of the
inter-industrial and interregional model
(OIIM) as an integral part of system of
economic planning model, proposed in the
IEOPP, which was developed by the Soviet
Academy of Sciences in 1972 [13]5. The
criterion for the model’s optimization was
the fundamental law of socialism, stating
that the needs of all people in all regions
should be met to the maximal degree, while
the balance of production, accumulation
and consumption should act as the
regulator – the socialist law for the planned
and balanced economic development.
Regrettably, the economic advisors of the
contemporary Russian Government have not
yet "matured" to realize that the approach
of planning in pursuit of a balanced
economic development is a necessary
element of any industrial (including postindustrial) economy. The orientation to the
"mainstream" as the theoretical grounds of
the strategy for the economic development
of Russia and its regions continues to foist on
the people that the Russian economy is not
peripheral and that it is likely to achieve the
desirable results and take a stable position.
Figure 1 offers only one of the possible
options of a logical model to facilitate
the search for of theoretical premises on
which regional development strategies will
rest. Each country has its own specificity
of economic development. Hence the
various kinds of theoretical tenets on which
regional strategies are based. It is known
that "there is nothing more practical than
good theory", particularly if this theory is
adequate in terms of the place and time of
action, and of specific action taken. Only
then is there hope that we will not emerge
dressed in the "economic clothes" of "the
naked king’s" tailor.
Formally there were both Goskom federation, and Ministry of National Policy of Russia, and the Ministry of regional growth
and other similar departments, but their role in the definition of the directions of spatial development of the country was minimum: on the one hand pressed interests of multinational corporation (let and with the Russian capital, but comprador structure
of their management), and with another – regional leaders, not always capable to reach compromise among themselves or
with the federal level of the power.
5
At the same time in Central Economical Mathematical Institute functioning of Academy of Sciences of the USSR other system
of models which received the name SOFE – System of optimum functioning of economy [14], but also having laws of political
economy of socialism in a basis was offered.
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What Concept of Political Economy is
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Fig.1. Logical search pattern of the regional strategy
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